Roku Tops 2Q Estimates But Cautions About Ad Outlook

Roku recorded better-than-expected 2Q revenues of $356 million, compared with Street estimates of $315 million. The company’s loss of $0.35 per share beat analysts’ expectations for a loss of $0.50 per share. However, the TV streaming giant remains uncertain about its advertising outlook for the second half of the year due to the negative coronavirus impact on the industry.

Roku’s (ROKU) CFO Steve Louden stated, “We’re still growing significantly, but it is slower growth than we would’ve otherwise expected, given the macro environment.” He added that “There might be some short-term volatility with the ad market, but overall this environment is very good for Roku. It is clear that the long-term trend to streaming has being accelerated by Covid-19.” The company warned in a letter to shareholders that its total TV ad spending won’t return to pre-pandemic levels until 2021.

Ahead of Roku’s earnings, Rosenblatt analyst Mark Zgutowicz raised the stock’s price target to $190 (15% upside potential) from $145 and maintained a Buy rating. Zgutowicz wrote in a note to investors that “We are incrementally more bullish on Roku’s ad revenue prospects NTM [next twelve months] as we believe the pandemic has (at last) become a tipping point to more meaningful transfer of linear TV ad dollars to CTV.”

Loop Capital analyst Alan Gould on Aug. 3 raised the price target to $120 (28% downside potential) from $90. According to Gould, the “connected TV spending held up better than digital TV overall during Q2.” However, he maintained a Hold rating on the stock due to its valuation and competition concerns.

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 7 Buys, 5 Holds, and 2 Sells. The average price target of $135.86 implies a downside potential of about 18%. (See ROKU stock analysis on TipRanks).